2019 (2) TMI 1211 - HC - Income Tax

Notional sales tax exemption - nature of receipt - whether a capital receipt not liable to Income-tax? - capital or revenue receipt - HELD THAT - We notice that this issue has been elaborately discussed by the Commissioner (Appeals). He took note of the various terms of the scheme of State of Uttar Pradesh and noted that depending on the location of the units of the eligible assessee, sales tax exemption was granted in terms of percentage of capital investment. The scheme itself was founded on the basis of attracting capital investments in certain backward areas. That bring the position, the scheme of Utter Pradesh which came up for consideration before the CIT (appeals) and Tribunal in the present case is substantially similar. Though obviously cannot be identical to the sales tax exemption scheme of the Government of Gujarat which was examined in case of M/s. Indian Petrochemicals Corporation Limited 2019 (1) TMI 1364 - BOMBAY HIGH COURT . Under the circumstances, the first question raised by the revenue is not entertained. Disallowing the deduction u/s 80IA - assessee had set up a captive power generating unit - rate at which the electricity generated by one unit of the assessee-company and provided to the another be valued - HELD THAT - As decided in COMMISSIONER OF INCOME TAX-LTU VERSUS M/S RELIANCE INDUSTRIES LTD. 2019 (2) TMI 178 - BOMBAY HIGH COURT the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee s case. See Reliance Infrastructure Limited Vs. Addl. CIT 2011 (1) TMI 36 - ITAT, MUMBAI - Decided against revenue

Summary

Issues:
1. Whether the ITAT was correct in holding a notional sales tax exemption amount as a capital receipt not liable to Income-tax?
2. Whether the Tribunal was right in deleting the addition made by the AO by disallowing the deduction claimed by the assessee under section 80IA?

Analysis:
1. The first issue involves the question of whether a sum received by the assessee as sales tax exemption is a capital receipt not liable to Income-tax. The assessee contended that the receipt was capital in nature, while the revenue argued that it constituted revenue receipts. The Commissioner of Income Tax held that the receipts were capital in nature, citing a decision of the Gujarat High Court in a similar case. The High Court noted that the issue was no longer resintegra, as it had been addressed in previous cases. The sales tax exemption scheme of the State of Gujarat was found to be similar to the scheme of Uttar Pradesh, leading to the conclusion that the receipt was capital in nature.

2. The second issue pertains to the deletion of the addition made by the AO by disallowing the deduction claimed by the assessee under section 80IA. The issue was previously examined by the High Court in a case involving Reliance Industries Ltd., where the revenue's appeal was dismissed. The Tribunal's decision in the present case was found to be in line with the previous judgment, as it was concluded that the factual data did not support a deviation from past practices in determining the deduction under section 80IA. The High Court upheld the Tribunal's decision, stating that the issue had been adequately examined before and did not constitute a substantial question of law.

In conclusion, the High Court dismissed the Income Tax Appeal, upholding the decisions of the Tribunal regarding the capital nature of the sales tax exemption receipt and the deletion of the addition made by the AO under section 80IA. The judgments of previous cases and the consistency in legal interpretations were crucial in determining the outcomes of the issues raised in the appeal.